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State of the Small & Growing Business Sector

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State of the Small & Growing Business Sector 2019 REPORT STATE OF THE SMALL & GROWING BUSINESS SECTOR 2 STATE OF THE SMALL & GROWING BUSINESS SECTOR TABLE OF CONTENTS AUTHORS AND ACKNOWLEDGEMENTS 3 LETTER FROM THE EXECUTIVE DIRECTOR 4 WHAT IS ANDE? 5 EXECUTIVE SUMMARY: THE SGB SECTOR IN 2019 AND BEYOND 6 PART 1: SGB SECTOR SNAPSHOT 7 CAPACITY DEVELOPMENT IN 2019 8 SGB-INCLUSIVE INVESTMENT IN 2019 13 DONOR FUNDING AND PHILANTHROPIC SUPPORT IN 2019 17 PART 2: ANDE IN 2019 20 LATIN AMERICA 23 ASIA 26 SUB-SAHARAN AFRICA 28 METHODOLOGY 31 RESOURCES 34 ASPEN NETWORK OF DEVELOPMENT ENTREPRENEURS 3 AUTHORS AND ACKNOWLEDGEMENTS Research Team Victoria Hume, ANDE Abigayle Davidson, ANDE Matthew Guttentag, ANDE Acknowledgments Raphael Gideoni Albinati Batista, Graphic Designer Abigail Perriman, for your work on the investment vehicle database research. We would like to thank the organizations that took the time to provide valuable impact data. Without their participation, this report would not have been possible. Cover image © The Aspen Institute: Photo by Cage Free Productions Support for this report The Global Inclusive Growth Partnership: Building the SGB Support Ecosystem for 2020 and Beyond This report highlights both the progress and continued needs of the SGB support ecosystem in emerging markets in 2019. Now, in the midst of the COVID-19 pandemic, this support ecosystem will be more important than ever as SGBs, capacity development organizations, and investors all face social and economic headwinds. ANDE is excited to be joining a range of programs in the Global Inclusive Growth Partnership (GIGP), a collaboration between the Aspen Institute and the Mastercard Center for Inclusive Growth. The Global Inclusive Growth Partnership (GIGP) is a multi-year initiative that combines the expertise and networks of both the Institute and the Center to address income and information inequality through the lens of inclusive growth. As part of this partnership, ANDE will map out entrepreneurial ecosystems across emerging markets, develop a series of convenings and communications campaigns to highlight the needs of SGBs and potential SGBs in these markets, and conduct deep-dive research into how SGBs and their supporters are coping with the COVID-19 crisis. 4 STATE OF THE SMALL & GROWING BUSINESS SECTOR LETTER FROM THE EXECUTIVE DIRECTOR Dear colleagues, These are turbulent times. Millions of people have been infected with COVID-19 worldwide, while governments struggle to balance public health precautions and economic activity. Demonstrations for long-awaited and much- needed racial justice in the United States have spread throughout the world. Our social and economic realms are in a state of upheaval. Throughout emerging markets, small and growing businesses (SGBs) are confronting this disruption and fighting for their survival. So too are the intermediaries – the accelerators, advisors, training institutions, and investment firms – that support them. Over the past decade at ANDE, we have learned how important SGBs and entrepreneurial support organizations are to economic prosperity in emerging markets. These firms are the job-creating backbone of most economies. SGBs also offer a mechanism to promote social equity. They are found in rural and urban areas; in poor and rich countries; in the Global South and Global North. Enterprises and the jobs they create represent a pathway out of poverty and towards the dignity of decent work and a steady income. Starting or working at a business is not the antidote to the various “isms” that damage our societies, but it can help. As entrepreneurs, women are able to demonstrate abilities outside of homemaking, gaining the respect of their spouses and families. In building business networks, people of different races, creeds, and circumstances are forced to interact, which can break down preconceived notions or prejudices. It is critically important for developing world economies that many SGBs survive. As this report shows, the SGB sector in emerging markets was advancing in 2019, with at least 85 new investment vehicles launched, a set of major donor initiatives deploying hundreds of millions of dollars of catalytic grant capital, and new research furthering the field’s knowledge on the best ways to support SGBs. However, the COVID pandemic stunted this progress. By April 2020, ANDE surveys showed that approximately 40% of developing economy SGBs and up to a third of the capacity development providers were in danger of failing within six months. In the initial wake of the COVID pandemic, ANDE moved quickly to ensure the health and safety of our team and allow for the ongoing operations of the organization. We then shifted our focus to supporting our members and the broader emerging market SGB sector by compiling and sharing COVID-response resources, hosting peer- to-peer learning sessions, and publishing an issue brief on sector needs and potential responses. We are now actively promoting the establishment of an SGB Sector Recovery Fund focused on intermediaries in entrepreneurial ecosystems. While our world may be irrevocably altered—hopefully for the better in some ways—ANDE’s long-term strategy has not changed. We continue our mission to provide services to our network members and the broader SGB sector. We continue to believe that our focus on sustainable development goals related to decent work, gender equality, and environmental sustainability makes sense, as they are deeply interconnected with the present push for social and economic change. Randall Kempner Executive Director ASPEN NETWORK OF DEVELOPMENT ENTREPRENEURS 5 © The Aspen Institute: Photo by Cage Free Productions WHAT IS ANDE? The Aspen Network of Development Entrepreneurs is a global network of organizations that propel entrepreneurship in emerging markets. ANDE members provide critical financial, educational, and business support services to small and growing businesses (SGBs) based on the conviction that SGBs will create jobs, stimulate long- term economic growth, and produce environmental and social benefits. Ultimately, we believe that SGBs can help lift countries out of poverty. © The Aspen Institute: Photo by Cage Free Productions 6 STATE OF THE SMALL & GROWING BUSINESS SECTOR EXECUTIVE SUMMARY: THE SGB SECTOR IN 2019 AND BEYOND 2019 saw a variety of positive trends for the small and growing business (SGB)1 sector in emerging markets. A wide range of investment vehicles were launched with capital available for early-stage ventures, major new research emerged around best practices for capacity development support, and both public and private donors launched catalytic new initiatives. As the sector adjusts to the COVID-19 pandemic in 2020 and beyond, it is important to consider the progress made in 2019 as donors, investors, and intermediaries implement strategies to preserve these gains. In 2019, ANDE members continued to provide critical support for SGBs, building capacity for over 190,000 SGBs around the world. Capacity development delivered by ANDE members in 2019 focused largely on business strategy and planning support and creating access to networks and partners for SGBs. This was primarily delivered through classroom or seminar training paired with tailored or one-on-one support, though with the implementation of social distancing in 2020 many of the services members provide are shifting online. ANDE identified 85 new SGB-inclusive investment vehicles providing capital for SGBs in Africa, Latin America, and South and Southeast Asia, with median target assets under management (AUM) of $35 million and committed capital to date of at least $2.9 billion. These vehicles enter the market amid a significant new push of donor funding to provide “catalytic capital,” which aims to support the infrastructure necessary for SGBs to access private capital efficiently through a combination of philanthropic and private resources. There were at least three major catalytic capital activities launched in 2019, with a combined funding pool of $329 million, representing a success for organizations that have been pushing for this type of blended approach. The role of catalytic capital will only increase as private investors reconsider their own strategies and expectations in light of COVID-19 and its consequences. With respect to bilateral and multilateral donor funding, a greater portion of enterprise support funds were directed towards Latin America and the Caribbean in 2019 than in previous years, and support fell slightly in the Middle East and North Africa, South Asia, and Europe and Central Asia. With 2020’s donor shift towards COVID-19 response, it remains unclear how bilateral aid organizations will adjust their programs to address the enormous needs faced by SGBs due to the pandemic. This report provides a retrospective summary of key developments and trends in the sector in 2019, and relevant insights based on initial data and emerging information on the potential impact of the COVID-19 pandemic on those trends. 1 Small and Growing Businesses (SGBs) are defined by ANDE as commercially viable businesses with five to 250 employees that have significant potential, and ambition, for growth. Typically, SGBs seek growth capital from $20,000 to $2 million. SGBs differ from the more traditional characterization of small and medium enterprises (SMEs) in two fundamental ways. First, SGBs are different from livelihood-sustaining small businesses, which start small and are designed to stay that way. Second, unlike many medium-sized companies, SGBs often lack access to the financial and
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